State aid: Commission requests France to comply with Court judgment on recovery of incompatible tax exemptions for takeover of ailing companies

IP/10/529

Brussels, 5 May 2010

State aid: Commission requests France to comply with Court judgment on recovery of incompatible tax exemptions for takeover of ailing companies

The European Commission has formally requested France to implement a 2008 judgment of the European Court of Justice declaring that France had failed to recover incompatible State aid awarded in the form of exemptions from corporate tax for takeovers of ailing companies (case C-214/07). The Commission's request takes the form of a letter of formal notice, the first step in infringement proceedings for failure to respect a Court judgment (Article 260 of the EU Treaty).

"Member States have a wide range of possibilities under EU state aid rules to support business without creating undue distortions of competition. In those cases where the subsidies are found to be illegal, the aid must be recovered swiftly to restore the level playing field between companies, to protect taxpayers' interests and to preserve the credibility of the rules themselves," said Competition Commissioner Joaquín Almunia.

On 16 December 2003, the Commission concluded that tax exemptions foreseen under Article 44 septies of the French General Tax Code were incompatible with the EU State aid rules because they procured selective advantages to certain companies, without objective justification (see IP/03/1738). This provision exempted from corporate tax for a period of two years companies purchased in the course of an insolvency procedure. As the scheme was implemented without receiving EU clearance, France must recover the subsidies thus granted, with the exception of those amounts that could be exempted under the de minimis, SME or regional aid rules.

On 13 November 2008, the Court of Justice of the European Union (CJEU) ruled that France had failed to fulfil the recovery obligations stemming from this decision.

The Commission acknowledges the difficulties encountered by the French authorities in calculating the aid to be recovered and ensuring repayment from over 200 companies. Its also acknowledges the efforts made by the French authorities since September 2009 to take concrete steps towards an effective recovery.

However, to date, only 27 companies have reimbursed the aid. In nine others subject to bankruptcy proceedings, France has fulfilled its recovery obligation by duly registering a creditor's claim. But, up to now, France has still not provided the Commission with the necessary evidence to definitively conclude that the main beneficiary of the scheme, FagorBrandt SAS, has effectively reimbursed the aid, even though the repayment of that aid was an explicit pre-condition in the Commission's decision authorising France to grant new restructuring aid to the FagorBrandt group (see IP/08/1558).

For this reason, the Commission has today formally requested France to comply with the judgment of the CJEU of 13 November 2008 by sending a letter of formal notice.

Background

Member States have to recover State aid that has been declared incompatible by the Commission within the deadline set in the Commission decision. This is very important because delays in paying back incompatible aid undermine the effectiveness of the rules and maintain the distortion of competition created by the subsidy. That is why Article 14 of Regulation n° 659/99 and the Notice on the implementation of decisions ordering the recovery of unlawful or incompatible aid (see IP/07/1609) provide that Member States should effectively recover the aid from the beneficiaries without delay.

If a Member State does not implement a recovery decision, the Commission may refer, the matter to the CJEU under the EU State aid rules (Article 108(2) of the EU Treaty

If a Member State does not comply with the judgment of the CJEU, the Commission may open an infringement procedure under Article 260 of the Treaty. The first step is to send a letter of formal notice to the Member State concerned which has two months to submit its comments. If the Member State continues to fail to comply with the CJEU judgment, the Commission may then refer the case to the Court for a second time and request the CJEU to impose fines until the aid has been fully recovered. The fines can take the form of periodic penalty payments, lump sums or both (see

European EC Rapid Press Release IP/10/529, copyright European Commission.
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